Right Angle began as a column in the now-defunct Sunday magazine in November 1991. The column allowed me the luxury of presenting an alternative to the prevailing left-liberal consensus in India. It has become the implicit signature tune for all my subsequent writings.

Friday, April 27, 2012

TO UNTIE THE STRINGS - The debate on federalism is now focused on fiscal powers

By Swapan Dasgupta

Liberal and ‘progressive’ opinion has been inclined
to view the question of states’ rights with both suspicion and distaste. To a
very large extent this wariness has originated from the themes that divided the
Union and the Confederacy in the American Civil War some 150 years ago. In the
popular imagination, states’ rights is seen as a platform of bigotry and
associated with either slave owners or politicians such as Strom Thurmond and
George Wallace who did their utmost to prevent the passage of Civil Rights
legislation. By implication, the opposition to excessive autonomy for states of
Union have become associated with forces intent on top-down social engineering
to rectify local wrongs. Over time, the issue of states’ rights have also influenced
the recurring disputes between big government and small government—an issue
that has resonated in the grassroots activism of the Tea Party.

That India and the US have different experiences
with Constitution making is not in doubt. The US initially came into being as a
consequence of individual states joining the Union in a voluntary federation.
The Republic of India, despite being a nominal ‘Union of States’, evolved as
the successor regime of British India (minus the parts that made up Pakistan).
To this was added the many hundred Princely States whose rulers signed the
Instrument of Accession and were effortlessly subsumed into the new Republic.
With the states being regarded as mere administrative units, there was a basis
to B.R. Ambedkar’s assertion in the Constituent Assembly that the Constitution
did not acknowledge any right of secession. If the Union had created the
states, how could the states see themselves as founder members with a right to
withdraw?

The Constitutional denial of secession is worth
reiterating if only to set at rest the uninformed fear that the recent
political battles over federalism in India are a precursor to the weakening and
eventual disintegration of the Indian Union. Admittedly this was a lurking fear
in the first two decades after Independence but following the creation of a
national market, the rise in inter-state mobility and the unifying effects of
the media, Bollywood and cricket, the fear of India coming apart has virtually
become a non-issue. It would be preposterous to suggest that those in the
forefront of the demand to review Centre-state relations harbour separatist
ambitions. Indeed, it is noteworthy that the recent political strains between
the non-Congress-ruled states and the Centre have not been accompanied by
sectarian strains involving locals and outsiders.

The movement for more equitable federal relations
has undergone a profound change since the last years of Indira Gandhi’s
Government. In those days, much of the controversy centred on the powers of the
Governor and the partisan use of Article 356 to dismiss state governments. It
was primarily these political concerns that led to the appointment of the
Sarkaria Commission to review the whole gamut of Centre-state relations.

The Sarkaria report and the Supreme Court judgment
in the S.R. Bommai case succeeded in substantially preventing the misuse of the
Centre’s discretionary powers. While many states continue to be unhappy with
the Centre’s de-facto veto over state legislation—witness the fury of Gujarat
over the Centre’s persistent refusal to approve its anti-terror bill—it would
be fair to say that the debate has shifted to the more pressing issue of fiscal
powers.

What has triggered this move is India’s economic
growth. The rapid growth of the country’s Gross Domestic Product since the
process of liberalisation began in 1991. In recent years, the gross tax
revenues of the country as a whole have increased exponentially. In 1960-61, it
amounted to 7.8 per cent of GDP, and rose to 15.5 per cent in 1990-91 and 18.6
per cent in 2008-09. In the corresponding period, the tax revenues of the
states was 2.6 per cent of GDP in 1960-61, 5.3 per cent in 1990-91 and 6.3 per
cent in 2008-09. In short, while the exchequers of the states have swelled, their
growth has not been commensurate with the phenomenal expansion in the tax
revenues of the Centre. By 2010-11, the total receipts of the Centre amounted
to 16 per cent of the GDP. The Centre has been the principal beneficiary of
India’s growing prosperity.

The associated outcome of the burgeoning of the
Centre’s kitty has been the United Progressive Alliance’s endorsement of
mega-welfarism. Under Indira Gandhi and Rajiv Gandhi the Centre did experiment
with modest anti-poverty projects. On its part, the National Democratic
Alliance threw its weight behind schemes to upgrade India’s creaking
infrastructure. The Manmohan Singh Government, backed by the political clout of
Congress President Sonia Gandhi, has shed modesty and embraced projects on a
scale never witnessed before. The Mahatma Gandhi National Rural Employment
Guarantee scheme covers the whole country and the proposed Food Security Bill
is aimed at providing subsidised foodgrain to every family reckoned to be below
the poverty line. In addition, the annual Plan outlay rose to Rs 5,92,457 crore
in the Budget of 2011-12. Of this Plan expenditure, nearly one-third was meant
for social services and rural development.

The Cabinet Mission proposal that the Centre should
confine itself to defence, public finance, foreign policy and communications
was never accepted by the Congress. However, today’s enlarged Centre is
increasingly viewing itself as the only motor of state intervention, including
involvement in spheres that are the preserves of the state governments. The
Constitution-makers had envisaged that a redistributive Centre should aid the
states through a revenue sharing process determined by the Finance Commission.
Today, however, more than 60 per cent of the disbursement is being done through
the Planning Commission, a body that was created outside the Constitution in
1950.

The growing powers of the Planning Commission have
meant that expenditure by the states comes with strings attached and is in line
with the priorities of the Centre. The MNREG scheme, for example, is thought to
be superfluous by the state governments in Punjab, Gujarat and Tamil Nadu. Yet,
they are obliged to participate in it. Successful food security schemes are
already operational in Chhattisgarh and Orissa. Now both these states are
confronted with the possibility of local initiatives being supplanted by a
Central scheme based on the one-size-fits-all principle.

The move towards homogeneity is fuelling resentment
in the states. India is a diverse country with vastly different levels of
development. By attempting to mould development according to an architecture
drawn up in Delhi, the Centre is creating distortions and fuelling waste and
inefficiency. It is not that the states don’t want additional resources: they
are seeking local controls over the pattern of expenditure.

Politically, the idea of a Federal Front has got a
fillip with the steady decline of the two national parties. However, the
opposition to an over-intrusive Centre is yet to be crystallised around
definite demands. In the coming days this is bound to be rectified. It is
possible to envisage a situation where the forthcoming debate on federalism is
likely to be along two broad lines.

First, there is likely to be a demand for the
primacy of the Finance Commission in the matter of resource allocation. By
implication this will entail a considerable dilution in the powers of the
Planning Commission and the emergence of empowered state planning bodies.
Secondly, the distribution of powers between the Centre and states will sooner
or later have to be renegotiated keeping in mind the growing importance of
market forces.

The general election
of 2014 could be the trigger for a shift of the political centre of gravity.

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About Me

The Right is an endangered community in India's English-language media. I happen to be one of the few to have retained a precarious toehold in the mainstream media. I intend this blog as a sounding board of ideas and concerns.
You can read the details of my education, professional experience and political inclinations on Wikipedia (http://en.wikipedia.org/wiki/Swapan_Dasgupta).
RIGHT ANGLE is an archive of my published articles. USUAL SUSPECTS is my blog.